The Drought’s Effects on Car Insurance Prices

The lack of moisture in the ground doesn’t necessarily immediately bring to mind car insurance prices, but they are connected.

Rising tide raises all boats… and insurance premiums.

Many car insurance providers don’t only offer car insurance. Companies like Farmers and Allstate offer just about every type of insurance under the sun, including crop insurance. When they have a catastrophic year in payouts for home, business, and crop insurance claims, they have to recoup the monies paid out.

One of the ways that they compensate for large payouts in their other sectors is to raise premiums across the board, including car insurance.

Cars hate the drought too.

It’s not just the non-car related claims that they have to pay out in these trying times. During times of severe weather, including droughts, cars take a lot of punishment. When claims for cars jump significantly for a single area, then they insurance providers will have to reevaluate their current premium levels, which could mean that you could be paying more for car insurance.

A closer look at drought-stricken Texas

In Texas last year, State Farm reports that they had a total of 40,345 auto insurance claims, a rise of 785% over 2010’s claims. They expect 2012, a year with more drought and natural disasters to rise even more. As far as the amount paid out to customers, State Farm reports that they paid nearly $94 million dollars in auto related claims in 2011, as opposed to a mere $9.3 million the year before. An increase of 784%. Many of these claims are related to severe weather, including drought. Based just on the numbers in Texas alone, we can expect to see auto insurance claims skyrocketing throughout the country.

Less corn, less money in our pockets

Since about 52% of the nation has experienced moderate to severe drought in 2012 alone, that means that just about every state has been affected and The Corn Belt has been hit especially hard by the drought.

We may only think of corn as it applies to our favorite Mexican foods or 4th of July barbecues, but corn is a key or partial component of just about everything in your local grocery store. Corn is in ketchup and soft drinks and is the primary food source for the livestock that we eat.

Corn is part of the chemical makeup of just about every plastic bottle and is present in things like gasoline and toothpaste. We can’t really make a purchase at the store without buying corn in some way.

The basic principle is that when the price for corn goes up, the price for everything we buy goes up.

Ok, that’s nice, but how does that affect my premiums?

Car insurance premiums keep pace with Inflation numbers, and a sharp rise in corn prices are key factors in overall inflation. If our farmers can’t produce enough corn, then we all pay the consequences.

Businesses have to survive

It’s not that car insurance companies are trying to hit us where it hurts. They’re businesses too. When their overhead costs go up, then they have to raise their prices to compensate. The bottom line is that just about every business sector is connected in our diverse and robust economy.

The flip-side is that when corn is plentiful, then the market prices can drop and give our wallets a much needed break for a while.
Mark McCrell is an auto aficionado who loves to drive his 1974 Buick LaSabre around town and write about all things auto. He currently blogs for the website Auto Insurance Quotes, which specializes in cheap auto insurance.

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